Highlights of this Month’s Review:
- There is no better time to work on your overall financial planning than the present! Call today to schedule your own private planning session.
- The major U.S. stock indices produced small gains in May to keep the year-to-date results positive (barely!)
- Interest rates crept higher, while fixed rate mortgages saw small increases.
- Oil prices continue to stabilize off the lows reached earlier this year.
- The U.S. dollar continues strong compared to other major currencies.
- We continue to focus on individual stock issues for equity exposure in client accounts and this approach has served us well so far in 2015 relative to comparable equity/stock benchmarks.
- Fixed Income/Bond exposure in client portfolios continues to focus on corporate high yield, foreign, and floating rate funds in light of current interest rate environment.
- When will the FED raise rate? The debate and guessing game continue.
Get Your Personal Plan Updated Now:
It’s hard to believe but 2015 is almost half over. Summer is a great time to get your personal long term financial plan completed and make sure it is up-to-date. We have the tools to assist you in preparing and keeping your plan current throughout the year. Here are some items you might consider reviewing now if they apply to your situation. We can help you will all of these and more:
- A checklist to follow at the loss of a loved one.
- When should you or your spouse start taking Social Security? What’s best for your own personal circumstances?
- What Social Security options are available for divorced couples?
- Do you know the major changes in the 2015 tax code and how they might affect you this year?
- Do you have a formal estate plan in place? If so, when was the last time you reviewed it? If not, now is the time to get your personal plan structured to protect you and your family.
Call us today to schedule your own review and let’s get your overall plan complete and updated. We are here to help and assist you with these and other financial areas that need attention. With our new MyWealth online system, we can work with you to structure your personalized plan and give you the tools to monitor and keep your financial affairs current. Schedule your private planning session, either in person or by phone now!
The major U.S. stock indices managed to produce small gains in May, with the Dow Jones Industrial Average ending up .95%, making its 2015 year-to-date return 1.05%. The broader based Standard & Poor’s 500 stock index rose 1.05% and is now 2.36% higher for 2015 through May 31st. (MarketWatch) U.S. stock indices have been in a somewhat “sideways” pattern now for the past 5 months, and this may continue into the second half of the year as well in our opinion.
Interest rates rose for U.S. Treasuries in May, with the yield on the 10 year U.S. Treasury ending at 2.12%, up .07 for the month. For 2015 however, the yield is still slightly lower than the 2.17% it was to start the year. (U.S. Treasury) Mortgage rates for a 30 year fixed mortgage ended May at an average of 4%, while the 15 year fixed rate was at 3.22%. (Bankrate.com)
Oil prices continued to stabilize and the price per barrel for West Texas Intermediate Crude Oil closed out May at $60.22 compared with $53.27 at the beginning of the year. Gold prices rose in May, up $11.15 per ounce, ending at $1,191.40. This is still slightly lower than the $1,206.00 per ounce to start 2015. (CNBC, St. Louis Fed)
The Dollar Creates Plenty of Ripples
The U.S. dollar began flexing its muscles against the world’s major currencies about four years ago, with much of the strength coming since the summer of 2014 – see Figure 1.
One key indicator is the trade-weighted Dollar Index, which is a weighted average of the dollar against the major currencies. It hit an eleven-year high just a couple of months ago (St. Louis Federal Reserve). Most analysts are in agreement that the dollar’s attraction has much to do with the relative strength of the U.S. economy, and expectations the Federal Reserve will begin raising interest rates later in the year.
While the economy has slowed this year, knocking the dollar off its recent high, the relative appeal of the U.S. economy has encouraged a flow of capital into the U.S. In addition, Federal Reserve officials continue to talk about raising interest rates. Higher returns on safe investments add to the dollar’s appeal, especially at a time when major central banks around the world are telegraphing they have no intention of ending their ultra-accommodative monetary policies.
Take a look at Figure 2. Most of the world’s commodities are priced in dollars, so strength in the dollar depresses commodity prices. It’s a plus for U.S. consumers and manufacturers but works against producers of raw materials and countries that rely on commodities.
Despite the belief that stocks in general are still overvalued from a long-term stand point, equities still seem a reasonable place to remain invested at this time. With the ability to select individual securities, our stock models continue to find investments considered good values and have performed very well relative to their respective benchmarks. In the fixed income/bond space, floating rate debt and corporate high income bonds continue to be favored. Current long-term treasury yields appear to have put in a bottom in the first quarter of this year and should remain at current levels and potentially float modestly higher over the coming months. This pro-risk outlook is expected to continue for the coming two quarters, which is constantly being re-evaluated for a change in tide. Based on risk, portfolios will eventually begin pulling back the reins; however this does not appear to be necessary in the near term.
Large cap stocks within the energy sector have seen some attractive valuations over the past several months, but the smaller firms should continue to see increased volatility as the industry settles down from recent swings in oil prices overall. The housing market continues to be America’s strong point despite tighter lending standards and increased regulations. Employment also remains quite stable even with fears of recession, which we feel are unwarranted at present. U.S. economic growth remains lackluster, but it is positive. Most look to the Fed to tighten in the near future, originally thought to come as early as this summer. Many estimates now expect it to be as early as the fourth quarter; though some are looking into 2016 before the FED starts raising rates. In the near-term, portfolios remain indifferent to a Fed rate hike and could possibly benefit if it occurred.
A more rapid improvement in economic conditions could result in a faster pace of rate increases, while less favorable economic conditions could slow a series of rate hikes and/or delay the first rate increase. Stay tuned.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.